Bankruptcy – an overview

Bankruptcy is an option for dealing with serious debt where an individual is unable to repay what they owe within a sensible period of time.

If you declare yourself bankrupt, all your unsecured debts will be taken away from you. You will normally be bankrupt for 12 months. After this time, you will be discharged and any unpaid debt will be written off leaving you to get on with your life debt free.

Your creditors take no part in the bankruptcy process. The court will review the application, and if in agreement that you are insolvent, will issue a bankruptcy order.  Whether or not you need to make any payments towards your debts or sell any of your assets for the benefit of your creditors will be decided by the court.

The advantages of Bankruptcy

• When you are declared bankrupt, all of your unsecured debts are taken away from you. You are no longer responsible for paying them and your creditors can not collect any further money from you.

• You will normally be Bankrupt for just 12 months. After that period you will be discharged. Any debt that is unpaid after that time will be written off.

• If you cannot afford to do so, you will not have to make any monthly payments towards your debt.

• You will be allowed to keep reasonable household items including your washing machine, fridge freezer, Hi-Fi, television and DVD player. You will also be able to keep tools of your trade and a car worth up to £1,500.

The disadvantages of Bankruptcy

• Bankruptcy is a public process. As such, if you are declared bankrupt, your name and address will be published in your local newspaper and the London Gazette.

• If you have any valuable non essential assets, these are likely to be sold for the benefit of your creditors. This is particularly the case if you have a car worth more than £1500.

• You will have to give up your share of any equity you have in a property. This may result in the sale of the property unless a friend or family member can raise a similar sum on your behalf.
• You are unable to act as a company director or be involved with the management of a limited company while you are bankrupt.

• If you can afford to do so, you will have to make monthly payments to the court towards your debt for up to 3 years.

•  The record of your bankruptcy remains on your credit file for 6 years meaning it will be difficult to obtain further credit during this time.

Is Bankruptcy suitable for me?

Because monthly payments are only required if disposable income is available, bankruptcy has traditionally been used by people who have little or no assets or disposable income with which to pay their creditors. Generally bankruptcy would be avoided by home owners because of the risk of the property being sold to pay creditors from the equity.

• If you have little or no disposable income
• If you are not a property owner and want to resolve your debt problem in the fastest way possible

However, more and more bankruptcy is being seen by non home owners as a sensible way of dealing with debt. Even if disposable income is available, payments towards bankruptcy are only required for 3 years compared to 5 years for an IVA and possibly much longer if using a debt management plan.

Home owners with little or no equity in their property are also using the bankruptcy process. In this situation, it is unlikely that the house will be sold and it is possible to regain control of the property for a nominal figure plus solicitor’s fees. 
 

How much does bankruptcy cost?

In order to declare yourself bankrupt, you will need to pay Court Fees. These currently total a one off charge of £510 made up of a Court Fee of £160 and a fee towards the cost of managing the bankruptcy of £350.

If you are claiming certain benefits, you may be able to get a reduction or exemption from the Court Fee.

The Court is unable to give advice on completing your Bankruptcy application forms. If you require help from a third party to do this, you should expect to pay an additional one off charge for this service.

Next Steps

Bankruptcy may be ideal to resolve your debt problem. However, before you choose to carry out this type of solution, it is important that you understand all of the possible alternatives available.

Reading the rest of this guide is a good place to start. However, the best way to really understand your financial situation and decide on the correct course of action is to speak to an expert.

Beat My Debt provides a free debt advisory service and will be happy to give you advice and guidance. We can be contacted in the following ways:

Email   advice@beatmydebt.com
On-Line Forum www.beatmydebt/forum/
Free Phone  0800 077 6180